It’s Official:EU Says No to Provisions Restricting Bitcoin
EU”s heavily debated MiCA regulation is moving forward but without the provisions of the PoW ban.
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European Union’s MiCA Proposal Progresses to Trilogue Stage Without Bitcoin Ban Provision
The Markets in Crypto Assets (MiCA) regulatory package passed another potential hurdle this week and is moving to the next stage of the EU’s legislative process. Proponents of a controversial text prohibiting proof-of-work (PoW) cryptocurrencies, which was recently dropped from the draft, did not take an opportunity to block the draft’s progress. EU Parliament, Commission […]
Green ‘light:’ The EU’s approach to crypto balances eco-values with regulatory relevance
European policymakers have backed away from passing rules which would have unfairly targeted Bitcoin for environmental reasons.
Last week, Bitcoin (BTC) dodged a regulatory bullet in the European Union when proposed cryptocurrency legislation was altered to not include a ban on proof-of-work- (PoW)-based crypto assets. Policymakers had raised a number of concerns about the relative anonymity of crypto transactions and their environmental impact. Some experts including Tim Frost, founder and CEO of Yield App, believe that the “climate change” angle reflects a hidden attempt to ban Bitcoin. But, why?
The proposed EU regulation on Markets in Crypto Assets (MiCA) can be seen as a hybrid approach, which sometimes treats crypto assets as securities and at other times treats them as currency. This has left legislators divided, as the European Council, composed of representatives of the respective countries, believes the European Banking Authority (EBA) should be the new crypto watchdog, while the European Parliament would hand that role to the European Securities and Markets Authority (ESMA).
Green protectionism and green deals
While an outright ban on proof-of-work, which would have hobbled Bitcoin, has been avoided, the environmental rhetoric surrounding the EU push for regulation remains. This reflects a trend towards “green protectionism” in EU regulation: The EU is attempting to protect its market and institutions (in this case, its currency, which is less than a decade older than BTC) using environmental concerns as a rallying cry.
This approach has already attracted the ire of the EU’s trade partners. In 2019, shortly after European Commission President Ursula von der Leyen assumed office, the EU officially declared its “Green Deal” goal of having net-zero greenhouse gas emissions by 2050. This followed a wave of greens winning in the European Parliament earlier that year. The idea of a “Green Deal” had originally been promoted by the United States Democratic Party but was opposed by former President Donald Trump, which prompted Europeans to borrow the concept.
The EU intends to pursue this goal by shifting to renewable energy sources for electricity generation, increasing housing energy efficiency and creating “smart infrastructure.” The price tag for the program was set as one trillion euros in the first decade. According to the Valdai Club, “The symbolic significance is as follows: the EU declares itself a global leader in promoting the climate agenda and sets new standards for cooperation between the state, business and society in countering climate change.”
Green — with envy? Bitcoin vs. euro
The European banking system has faced several major crises since the introduction of the euro as a common currency within the eurozone in 1999, notably the financial crisis in 2008, the 2011 euro sovereign debt crisis and the COVID crisis. Pervasive problems such as negative inflation and difficulties in coordinating monetary policy have often left the bloc relying on several stronger economies such as Germany to bail out weaker states such as Portugal, Italy, Greece and Spain in times of need. This has elicited questions about the long-term sustainability of the currency.
To make matters worse, austerity mandates have often empowered populist politicians such as Italy’s Five Star party to threaten withdrawal from the euro bloc. This has weakened Brussels’ aspirations to sell the euro as an alternative “world reserve currency” to the U.S. dollar. While trade in euros dwarfs the global volume of cryptocurrency transactions by several orders of magnitude, it’s understandable that eurocrats would want to avoid competition with a liquid medium of exchange.
Europe’s financial targets
According to Tim Frost, founder and CEO of fintech firm Yield App, “there has been little work undertaken to truly understand the actual environmental impact of mining cryptocurrencies, not least compared to the oil and gas industry that the EU and other global governments are still very happy to support through kickbacks and incentives.” He adds that “if regulators were seriously concerned about the environmental impact of industries, then cryptocurrency would surely be the last industry to be considered.”
Frost voiced suspicion about singling out of cryptocurrency in the environmental debate, which he said was “somewhat lopsided, if not suspicious,” given that the proof-of-work system originally targeted by legislators was an essential part of the architecture of Bitcoin, which accounts for the lion’s share of the cryptocurrency economy.
It can be said, however, that both the euro and cryptocurrency possess a unique set of political risks in that they are not tied to traditional states engaging in traditional monetary policy. EU regulators have already been accused of trying to “punish” the United Kingdom for Brexit as a warning sign to other potential leavers, so it’s not unfair to argue that attempts to hobble crypto could be driven more by self-interest than by environmental notions.
Brussels as an exporter of regulatory standards
Setting new rules involving trade is also seen as a win for European lawmakers in and of itself. During Donald Trump’s time in office, many opined that the U.S. could no longer be seen as “the leader of the free world” in terms of policy initiatives and was focusing on “America first.”
The United States, in the eyes of Europeans, had turned its back on global regulatory initiatives. The most poignant reflection of this was Washington D.C.’s decision to pull out of the Paris Agreement on climate change. Trump’s backtracking on the Iran deal was another indicator that the U.S. had switched to favoring unilateral policymaking and was willing to “weaponize” its role in the global economy as well as that of the dollar.
This left the EU with a window of opportunity to take a leadership role. While international formats such as the G-20 and Organization for Economic Co-operation and Development (OECD) had larger aggregate economies, they lacked the EU’s expertise as a consensus-based supranational union capable of establishing and maintaining standards.
In the late 1990s, when the internet and global banking were first coming into their own, the OECD had taken the lead in introducing new global regulations to prevent companies from utilizing low-tax jurisdictions. In 2000, the OECD introduced a “blacklist” of uncooperative tax havens and identified 31 such jurisdictions by 2002. At the time, the OECD countries accounted for the lion’s share of the global economy. These were able to force all of them to implement its standards of transparency and exchange of information.
Taken together, these forces underlie what on the surface looks as the push to emphasize environmental concerns the EU’s emerging crypto regulation
EU vote on Bitcoin mining: What does it mean for the industry?
A win in the European Parliament, but will mining rules have to change? “Eventually, only PoS will be adopted by blockchain applications.”
Proof-of-work (PoW) crypto mining won’t be banned in the European Union — not this year at least. That’s the conclusion from last week’s closely watched committee vote in the European Parliament (EP).
A last-minute amendment presented by an ad hoc coalition of social democrats and Greens would have established a de facto ban on proof-of-work mining — the type of consensus mechanisms used by native cryptocurrencies like Bitcoin (BTC) and Ether (ETH) — has been decisively rejected. The crypto community can breathe easily, but some still worry that the industry’s problem with its energy-intensive consensus protocols remains.
“My first reaction to the Economic and Monetary Affairs committee vote outcome was a sigh of relief,” Joshua Ellul, director at the Centre for Distributed Ledger Technologies and senior lecturer at the University of Malta, told Cointelegraph, adding:
“It is definitely a sign that crypto and distributed ledger technology is no longer a niche bringing together technologists, investors, hobbyists and idealists — it is a technology that is here to stay.”
But, Ellul also believes that the community should not rest easy with last week’s win. Miners who support PoW blockchain projects should be “investigating renewable energy sources,” not only in anticipation of other possible regulatory actions but also to minimize their carbon footprint.
The committee vote was part of the European Union’s ongoing Markets in Cryptocurrency Assets (MiCA) process designed to bring harmonization, clarity and regulation to Europe’s cryptocurrency markets.
“In all likelihood, the de-facto PoW-ban amendment would not have found its way into the final MiCA agreement,” Patrick Hansen, head of strategy at crypto firm Unstoppable Finance, told Cointelegraph. But, that doesn’t mean that energy profligacy and carbon footprint are dead issues. Hansen added:
“The macro-environment — Ukraine, inflation, etc. — is changing rapidly, and energy consumption reduction might soon become an absolute policy priority.”
A wake-up call?
“This is good news for the crypto sector,” Yu Xiong, professor of business analytics and director of the Center for Innovation and Commercialization at the University of Surrey, told Cointelegraph, regarding the EP committee vote. It is another sign that cryptocurrencies and blockchain technology are being widely accepted by the public, but also “definitely provided a warning to those mining activities that use PoW. Prepare for transformation because nobody can predict if there will be another such vote in future.”
Ethereum will “hopefully” successfully transition to a more eco-friendly proof-of-stake (PoS) consensus mechanism later this year, he added. Otherwise, the vote provides time for other projects that use PoW to undertake their own transformation to reduce energy consumption and their carbon footprint.
Like some others active in the crypto space, Xiong believes that enlightened regulation — of the sort MiCA presumably offers — will be an overall plus for the crypto industry. Or, as European People’s Party spokesperson Markus Ferber put it recently:
“The markets for crypto assets have been like the Wild West for too long and need a European sheriff […] The new rules for crypto currencies will fill the existing regulatory vacuum by putting in place a clear framework to protect investors and ensure market integrity.”
All said, the 32 to 24 vote to reject the amendment was preceded by a certain amount of trepidation in the crypto community. “The MiCA situation is worse for crypto than anything in the USA,” noted Blockchain Association policy chief Jake Chervinsky, who said the amendment looked “like a pretext for a Bitcoin ban.” Meanwhile, Jean-Marie Mognetti, CEO of CoinShares, described the bid to ban PoW protocols as “more than just bad news” but rather “a thoughtless, uninspired proposal that does not reflect the realities and the future of the industry.”
Soon to be part of Europe’s sustainable “taxonomy”
Separate from the amendment tussle, the ECON committee also asked the European Commission to include cryptocurrency mining activities in its EU taxonomy — a classification system — for sustainable activities by January 1, 2025. The EU would then determine whether crypto mining could be classified as a “sustainable” activity. If deemed non-sustainable, European institutional investors and others might be inclined to give the crypto sector a wider berth.
“The taxonomy has a huge influence over where companies, investors and states [can] invest their money and subsidies,” explained Hansen recently. And, as more environmental laws pass, the more that influence will grow. Meanwhile, he added that PoW crypto mining could very likely be listed as “unsustainable” under the taxonomy.
But, this is still some time in the future and might be of limited scope. “I don’t think that the addition to the sustainability taxonomy from 2025 onwards will have a big impact on crypto adoption,” Hansen told Cointelegraph. “Depending on how it is defined, it might make investments in mining companies more difficult in the future, but we are still years away from that and mining is not an important economic activity in the EU anyway.”
More importantly, Hansen added, it will affect only the mining companies and “not the entire crypto industry as for the alternative amendment that was voted against.”
Xiong described crypto mining’s inclusion in the EU taxonomy as “reasonable.” It will put more pressure on miners to transition to more eco-friendly alternatives and he anticipates that fewer networks will use PoW consensus mechanisms come 2025. “Eventually, only PoS will be adopted by blockchain applications,” predicted Xiong.
Ellul said that the 2025 deadline offers some breathing room. “I hope that it encourages more renewable energy sources.” One problem with the PoW-energy debate, he added, is that it is highly polarized: “One extreme is that ‘no matter what the cost, PoW should remain,’ while the other is that PoW is going to kill us all.”
A less-heated middle position might be useful, he suggested.
A climate crisis looms
Were any lessons learned in this latest regulatory skirmish? According to Xiong, one lesson is that crypto and blockchain developers must “only embrace environment-friendly crypto” because any carbon emissions-related activities in this sector “will be quickly picked up by watchers.”
Indeed, Eero Heinäluoma, a European Parliament member and a backer of the anti-PoW amendment, said that “The carbon footprint of a single bitcoin transaction equals a transatlantic return flight from London to New York. This is 1.5 million times the energy used up by a VISA transaction. If we don’t curtail this massive carbon footprint by putting crypto-currencies on a more sustainable path, our efforts to combat the climate crisis and boost our energy independence risk being in vain.”
However, not all in the crypto community are swayed by these sorts of comparisons. Mognetti noted:
“At an annualized emissions rate of 41 million tons CO2, the global Bitcoin mining industry has a small environmental footprint relative to the aviation industry, marine transport sector, air conditioners, electric fans, data centers, and tumble dryers.”
Ellul agreed that the energy issue can’t be viewed in isolation. “Most everything of utility in the modern world requires energy and many other activities are power-hungry, too.” One example: Ireland’s power operator estimates that by 2028, 30% of Ireland’s electricity will be consumed by the country’s data centers.
Overall, the European Parliament committee vote “did not result in stifling technology this time, but indeed it raises questions about the future,” Ellul told Cointelegraph. Meanwhile, Hansen added that even if the committee vote had been lost, the mining ban would surely have been dropped from the MiCA bill later when the three key EU entities — Parliament, Council and Commission — reconcile their legislative texts in the EU’s unique “trilogue” process. Still, a defeat in the ECON committee would have looked bad, said Hansen:
“The mere symbol of the EU Parliament calling for a PoW ban would have had a very detrimental effect on the market.”
European Watchdogs Warn Users: Crypto-Assets Are Highly Risky and Speculative
The European Supervisory Authorities warned consumers that they face a very real possibility of losing all their invested money if they buy crypto assets,
How blockchain intelligence can prevent Russia from evading sanctions
Head of International Policy at Chainalysis explains why crypto is not a silver bullet for evading international sanctions.
As pointed out by Caroline Malcolm, Head of International Policy at Chainalysis, the transparent nature of blockchain technology makes it relatively easy for crypto intelligence companies to track funds related to sanctioned entities.
“We’re in quite a unique position because of the transparency and the permanency and the immutability of that public record”, explained Malcolm in an exclusive Cointelegraph interview.
Governments around the world have expressed concerns that Russia could use crypto to evade sanctions imposed as a response to its military offensive against Ukraine.
Addressing those concerns, Malcolm pointed out that in the last few years there has been substantial improvement in the crypto industry’s anti-money laundering and counter-terrorism framework.
That means that, depending on their jurisdictions, crypto exchanges are still required to enforce the same sanctions imposed on banks and other traditional financial intermidiaries.
Even though sanctioned entities could potentially move funds on private wallets, those movements can be easily tracked with blockchain intelligence tools such as those developed by Chainalysis. In most cases, these entities would have to rely on a centralized exit point in order to cash out.
“We still not living in a world where one can stay in the crypto economy and buy all the goods and services that one might like to buy.”, explains Malcolm.
At that point, an exchange equipped with Chainalyisis technology would receive an alert flagging the sanctioned funds, which in turn would allow the platform to freeze those funds.
According to Malcolm, these blockchain intelligence techniques make crypto less of a suitable means to avoid sanctions than traditional financial tools.
“The blockchain crypto environment is much more streamlined, in fact, than any tools capable of disrupting Russia’s use of a network of traditional bank wires or, frankly, even physical cash to evade sanctions”, said Malcolm.
Concerns remain that sanctioned entities could still rely on permissionless and decentralized protocols that don’t require AML/KYC procedures.
“We’re also working at the moment on developing new, more lightweight tools to provide an easy way for decentralized protocols and platforms to conduct basic sanctions checks to help manage reputational and sanctions enforcement risks.”, Malcolm added.
The blockchain ecosystem is well prepared against Russia’s potential attempts to evade sanctions through cryptocurrency.
Check out the full interview on our YouTube channel and don’t forget to subscribe!
The European Commission is looking for blockchain regulatory sandbox operator
The sandbox is designed to help remove legal uncertainties around DLT use cases.
On Monday, March 14, the European Blockchain Observatory announced a call for tenders to contract a consortium, whose mission will be to facilitate and operate a pan-European regulatory sandbox for distributed ledger technologies, or DLT, and blockchain in particular.
A major task for the future consortium will be to provide “comprehensive legal advice” concerning the operation of the core services of the European Blockchain Services Infrastructure (EBSI).
The regulatory sandbox is envisaged as a space where regulators, blockchain enterprises and users will interact “in a trusted environment.” In addition to already existing EBSI projects, it will host a broad range of prospective blockchain applications across key industry sectors, with a necessary condition for such projects to complete a proof of concept.
As the release goes, the ultimate goal of the sandbox is “to foster a dialogue between national and EU-level regulators and lawmakers with companies and thus remove legal uncertainties for use cases based on decentralized solutions”.
The plans to create a regulatory sandbox for blockchain technology have been announced by the European Commission and the European Blockchain Partnership (EBP) back in 2020.
According to the release, four EBSI-hosted use cases are already at an advanced development stage, with three additional use cases recently selected for deployment.
The news comes along with an announcement of the European Blockchain Observatory working on a revised version of the report on the latest developments in the EU blockchain ecosystem.
European Parliament votes against PoW ban, providing huge relief to the crypto industry
The moderate version of the regulatory framework’s draft prevailed in the ECON committee voting.
Earlier today, members of the European Parliament’s Committee on Economic and Monetary Affairs in the European Parliament voted against a version of the Markets in Crypto Assets, or MiCA, bill that could have effectively banned the proof-of-work-based cryptocurrencies within the EU. This comes as a huge relief for the crypto industry, whose representatives had previously warned about the threat of a hardline regulatory scenario.
MiCA is a regulatory framework that contains 126 articles, as well as a detailed plan of their implementation by the EU’s and member states’ institutions. The draft was introduced by the European Commission back in 2020 as a part of its Digital Finance strategy.
MiCA covers a wide range of crypto-related subjects, such as the status of all major currencies and stablecoins, mining and exchange platforms’ operations, with some notable exclusions such as digital currencies issued by central banks, or CBDCs, security tokens, nonfungible tokens, or NFTs, and decentralized finance, or DeFi.
The main intrigue of today’s parliamentary session lay in the significant differences between two versions of the draft that were up for a vote. One of them contained language that could outlaw any operations with the cryptocurrencies that rely on the Proof of Work, or PoW, protocol. The problematic line would require currency providers to submit a detailed plan of their compliance with environmental sustainability standards.
In the case of Bitcoin (BTC) and some other decentralized systems such details couldn’t be provided in principle, as there’s no existing central operator or an individual or collective decision maker.
That is why this version of the draft was previously corrected to remove such a regulatory deadlock. As the European Parliament Committee on Economics and Monetary Affairs member Stefan Berger assured earlier, the problematic language was not supposed to emerge in the final draft.
Ultimately, the hardline version of MiCa did appear on the floor, but was not supported by the majority of the MEPs. As Patrick Hansen, head of strategy at crypto firm Unstoppable Finance reported, 32 members of the ECON committee voted against the restrictive version and only 24 cast their votes in favor. The latter minority consisted largely of the members of the Green fraction and Progressive Alliance of Socialists and Democrats.
The more moderate version of MiCA, which will now continue its journey through the EU institutions, doesn’t contain any direct or implicated ban on PoW mining. Instead, it directs the European Commission, the EU’s chief executive body, to present a legislative proposal “with a view to including in the EU sustainable finance taxonomy any crypto-asset mining activities” by Jan. 1, 2025.
Crypto mining could still be categorized as an “unsustainable” activity before January 2025, thus getting barred from support and investment from European companies and governments. However, this is still quite far from an outright ban, whose enactment could have dramatically altered the state of crypto in Europe.
Next up for the MiCa is a three-way consideration by the European Parliament, European Commission, and the Council of the European Union.
Law Decoded: Joe Biden’s executive order is finally upon us, and it doesn’t look too dreadful, March 7–14.
The long-anticipated presidential directive drops, EU votes on PoW ban, South Korea gets a pro-crypto president.
As Russia’s self-styled “special operation” against Ukraine continues, crippling economic sanctions remain the Western powers’ primary weapon to counter Russia’s military actions without triggering an even more dramatic escalation. As NATO and allies’ financial offensive unfolds, ensuring that the collective West presents a united front remains political leaders’ chief concern. The global crypto industry keeps getting suspicious looks as some agents of state power are seemingly entrenched in their beliefs that digital assets could be the weak spot undermining the efficiency of the sanctions push. Despite ample evidence to the contrary — including the FBI director’s Congress testimony — there are signs of increased regulatory pressure on the crypto industry participants, as well as policy initiatives that clearly capitalize on the situation to tighten state control of digital assets’ circulation.
Few of those who follow the developments in the crypto policy space were surprised to learn that United States Senator Elizabeth Warren was hard at work drafting a bill that would impose additional disclosure requirements on crypto exchanges. According to some observers, the military conflict could also have contributed to U.S. President Joe Biden finally authorizing the long-anticipated executive order on digital currencies.
Whole-of-government effort ordered
There are two mutually exclusive views on the relationship between the timing of Biden’s executive order’s issuance and the war in Ukraine. One is that the directive had been ready to drop in mid to late February and that the administration’s preoccupation with the conflict pushed the release several weeks back. Another is that concerns over the enforcement of anti-Russia sanctions triggered an earlier release of the document that could have otherwise sat on the president’s desk for even longer. At any rate, the hotly anticipated EO descended on the crypto industry to an overall favorable reception. Many of the sector’s stakeholders and advocates were left generally content with the lack of restrictive language or superfluous emphasis on crypto-related risks. The key theme of the order is the consolidation of the government’s efforts to address the new financial reality within the scope of each agency’s jurisdiction. At least 14 separate reports looking into crypto-related matters from various agencies will be ordered, with most of them expected to be delivered within 90 to 180 days. Overall, the executive order will likely pave the way for a more focused and coordinated federal oversight of the digital asset domain.
EU wobbles on proof-of-work
On March 14, the European Parliament is slated to vote on a key piece of crypto legislation: The Markets in Crypto Assets, or MiCA, regulatory framework. One of the biggest points of contention present in the latest draft has been the provision that many observers interpreted as a route for banning proof-of-work (PoW) mining on environmental grounds. It seemed as if the threat had blown over as German member of parliament Stefan Berger announced last week that the final draft would not include the gnawing clause. Mere hours before the vote, however, it emerged that the language of crypto mining’s required “minimum environmental sustainability” has made it back to the bill’s text. The worst-case scenario appears to be on the table as some European regulators seem bent on going all the way in their crusade against PoW mining.
Crypto breaks the tie in Korea
In a tight race that has been reportedly decided by a margin of less than 1% of the vote, crypto-friendly candidate Yoon Suk-yeol has been elected to serve as the next president of South Korea. The candidates’ stances on digital asset regulation could very well have been the tiebreaker. With crypto being a hot political topic throughout the past year, both Yoon and his opponent, Lee Jae-myung, have articulated crypto-friendly stances on the campaign trail. Yoon’s promises to deregulate the digital asset industry and facilitate the fintech sector’s development into a regional powerhouse might have resonated with the younger South Korean voters more powerfully than Lee’s platform.
European Union Reportedly Votes Against Banning Proof of Work Cryptocurrencies
The European Union has voted against the proposition to ban proof of work cryptocurrencies on its territory.